Performance Measurement in Customer Care Services

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Performance Measurement

in Customer Care Services

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Developmental Case Study at the

Customer Care Center of DSM Powder

Coating Resins

Ann Schoot Uiterkamp

University of Groningen

Faculty of Economics and Business

MSc Organization Management & Control

March 2011

Diephuisstraat 13 Groningen

06-54922412

A.K.SchootUiterkamp@student.rug.nl

S1385313

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Performance Measurement in Customer Care Services

P arag rap h : EXE C U TI VE SU M M A RY 2

EXECUTIVE SUMMARY

This thesis concerns the selection and development of a performance measurement system and a performance measurement for the Customer Care Center (CCC) of DSM Powder Coating Resins (DPR). Motive for this research is the wish of the Customer Care Center of DPR to measure her performance. The present study attempts to find a suitable performance measurement system for the CCC of DPR to measure her overall performance and use this system measure the actual performance. In addition, it provides a base for future performance measurement frameworks on the individual level and it gives strategic and control recommendations. The research question is therefore stated as follows:

“What is a suitable performance measurement system for DSM Powder Coating Resins’ Customer Care Center, how can a system of soft controls possibly complement this system and what is the performance of the Customer Care Center of DSM Powder Coating Resins?”

Performance measurement system selection and development

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accordance with value propositions of customers in targeted market segments. In addition, these processes satisfy shareholder expectations of excellent financial returns. The learning and growth perspective discusses people, systems and organizational procedures. Finally, the strategic learning loop and the management control loop make management able to: monitor performance against strategy, work as teams to interpret data, develop new strategic insights, formulate new strategic directions, and update the measures on scorecards and change budgets. Within the different perspectives the following aspect can be distinguished: objectives, measures, targets and initiatives. The present study assumes that there are causal relationships between the different perspectives. These relationships are given in a strategy map. Successful customer value propositions like operational excellence, customer intimacy and product leadership can be translated to strategy maps of the scorecard that lead to success for holding a certain proposition.

In order to apply the BSC a BSC design framework is developed and applied within the present research in order to come to a concept version of the BSC as applied to the CCC of DPR. Based on a strategic analysis of the strategy map, different objectives and targets within the scorecard were tightened to come to the final balanced scorecard as applied to the CCC of DPR.

Balanced Scorecard applied to the CCC of DPR

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delivering proactive customer care services, building personalized relationship with customers and having an image of proactive excellence. For the internal perspective the first strategic goal is increasing customer value through order management, proactive customer care service, relationship maintenance management, and building an integrated account team. The second internal goal is contribute to sales and SCM results through sales and SCM orientation of the DPR‟s CCC. The final internal goal is an increase in productivity through process improvements. For the last perspective, the learning and growth perspective the following goals can be distinguished: increase strategic skills and best practice sharing, achieve strategic technology coverage, and build a culture of accountability and achievement. The content of the strategic and management control loop scorecard is not specified in this thesis. Related to the different objectives measures and measurement systems were defined and targets are set. For the financial and the internal perspective a measurement scorecard is developed which consists of simple measures and has to be filled in by the CCO‟s. The customer objectives are measured in an external survey which has to be filled in by customers. Finally, the learning and growth perspective will be measured with an internal survey. Targets are set based on strategic importance of objectives and customers. Initiatives within the scorecard concern different projects as distinguished within the “Customer at our Heart” program, a performance improvement program that currently runs at the CCC of DPR.

Performance results

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P arag rap h : EXE C U TI VE SU M M A RY 5 Recommendations

The present research recommends the DPR‟s CCC to make use of the balanced scorecard as applied to the CCC department of DPR. Besides, in order to complement the balanced scorecard and pay attention to the well being of employees a system of soft controls consisting of the following elements/ goals of soft controls is recommend: communication, dedication, teamwork, employee satisfaction and skills. Finally, with regard to the strategy of the DPR‟s CCC, the current research recommends to incorporate the focus towards performance areas and or customers that are of strategic importance for the CCC of DPR.

Relevance

This research is mainly relevant for the DPR‟s CCC and to comparable customer care/ service centres within or outside DSM. This relevance has a high practical nature. For the CCC of DPR this research provides an appropriate performance measurement system, complementary soft controls, performance results and strategic recommendations. For comparable customer care/ service centres the research can be relevant because it provides rich information concerning the application of a balanced scorecard within a customer care environment. In addition, the research contributes to the management control literature, through providing recommendations for soft controls in order to complement and supplement performance measurement systems in customer service environments and in addition, through providing selection criteria/ objectives that can be applied in order select appropriate soft controls. Finally, the present research adds value to the balanced scorecard literature because it provides a extended practical roadmap for developing a balanced scorecard based on a combination of existing frameworks. This practical roadmap specially pays attention to value propositions and therefore can form a sound base for value proposition analyses.

Keywords: Management control, performance measurement frameworks, BSC, BSC

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P arag rap h : P RE FA C E 6

PREFACE

The document in front of you is a master thesis about performance measurement systems. This master thesis forms the final element of my master Organization Management & Control at the University of Groningen. The research concerns an applied developmental case study carried out at the Customer Care Center of DSM Powder Coating Resins.

Goal of the present study is to select and apply an appropriate performance measurement system for the CCC of DPR, measure the performance of DPR‟s CCC, and in addition, give recommendations concerning complementary soft control (systems) and strategy.

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P arag rap h : P RE FA C E 7

it actually turned out to be very supportive. For all of this I would like to thank him. In addition, I want to thank my co-assessor Pieter Molenaar.

Finally, I want to thank all the people out of my personal environment who supported me during my research. Especially, Lotte Pigmans for the help I received in statistics and for having constructive discussions and Bob Jan Schoot Uiterkamp who helped me structuring the paper.

Ann Schoot Uiterkamp.

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P arag rap h : Li st o f ab b rev iat io n s 8

LIST OF ABBREVIATIONS

AT Account team BSC Balanced scorecard

CCC Customer Care Center

CCM Customer Care Manager

CCO Customer Care Officer

DPR DSM Powder Coating Resins

DSM Dutch State Mines

KPI Key performance indicator

PMS Performance measurement system

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P arag rap h : Li st o f ab b rev iat io n s 9 TABLE OF CONTENTS EXECUTIVE SUMMARY ... 2 PREFACE ... 6 LIST OF ABBREVIATIONS ... 8 PART 1 ... 12 INTRODUCTION ... 12

2. RESEARCH APPROACH / METHOD 1 ... 17

2.1 Research approach ... 17

2.2 Method 1 ... 18

3. CASE DESCRIPTION ... 19

3.1 Customer Care Centre (CCC) of DSM Powder Coating Resins (DPR) Zwolle site – organizational structure ... 19

3.2 DPR‟s Customer Care Centre – Work processes ... 21

3.3 Strategy and goals of DPR‟s CCC ... 22

3.4 Performance improvement project “Customer at our Heart” at the CCC of DPR ... 23

3.5 Performance measurement and management control at the CCC of DPR ... 24

4. LITERATURE REVIEW I – PERFORMANCE MEASUREMENT AND CONTROL IN SERVICE INDUSTRIES ... 26

4.1 Performance measurement in a bigger picture ... 26

4.2 Control systems ... 26

4.2.1 Management control versus strategic control ... 26

4.1.3 Different types of management controls ... 28

4.1.4 Soft management controls ... 29

4.1.5 When to use different types of soft controls ... 31

4. 2 Performance measurement ... 32

4.2.1 Roles of PMS within management control ... 32

4.2.2 Performance measurement systems ... 32

4.2.3 Current business performance environment ... 34

4.2.4 Performance measurement challenges in services ... 36

4.2.5 Performance measurement frameworks ... 38

5. PERFORMANCE MEASUREMENT SYSTEM SELECTION ... 44

5.1 PMS selection criteria ... 44

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P arag rap h : Li st o f ab b rev iat io n s 10 PART 2 ... 49

6. RESEARCH DESIGN/ METHOD II ... 49

6.1 Research design II ... 49

6.2 Method II ... 51

7. LITERATURE REVIEW II – BALANCED SCORECARD AND STRATEGY ... 54

7.1 BSC ... 54

7.2 Customer Intimacy Value Propositions translated to the BSC ... 60

7.3 BSC - Design process frameworks... 62

8. BSC DESIGN FRAMEWORK ... 65

9. APPLICATION PROCESS BSC TO DPR‟S CCC ... 67

9.1 Strategic objectives and strategy map ... 67

9.2 Measures and measurement tools ... 71

9. 3 Milestones and targets ... 76

9.4 Strategic programs/ initiatives ... 78

9.5 Strategic learning loop ... 79

9.6 Management control loop ... 79

9.7 BSC applied to the CCC – Concept version ... 79

PART 3 ... 82

10. STRATEGIC ANALYZE ... 82

10.1 Analyze of value chain and strategy map ... 82

10.2 Applications for the balanced scorecard ... 86

11. FINAL BSC AS APPLIED TO THE CCC OF DPR ... 88

11.1 Adjustments to the concept version ... 88

11.2 Final BSC as applied to the CCC of DPR ... 88

12. MEASUREMENT... 93

12.1 Data description ... 93

12.2 Assumptions of simple linear regression... 97

12.3 Scoring system ... 98

12.4 Measurement results ... 100

12.4.1 Financial perspective ... 100

12.4.2 Internal perspective ... 100

12.4.3 Overall Scorecard and Comparative Results ... 107

12.4.4 Internal performance in relation to financial results ... 109

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P arag rap h : 11

13. SUGGESTIONS FOR APPLICATION OF SOFT CONTROLS ... 112

13.1 Application method for soft controls ... 112

13.2 Case specific selection criteria / objectives ... 112

13.3 Selection of soft controls ... 113

13.4 Application of appropriate soft controls ... 115

14. DISCUSSION ... 116

15. CONCLUSION ... 119

16. RECOMMENDATIONS ... 121

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P arag rap h : p art 1 12

PART 1

This part of the present study concerns the selection of a performance measurement system. The followings chapters can be distinguished: introduction, research approach/ method 1, case description, literature review 1, and performance measurement system selection.

INTRODUCTION

The Customer Care Centre (CCC) of DSM Powder Coating Resins (DPR) is a Customer Service Centre that is responsible for the whole “Order to Cash” process of DPR. Goal of the CCC is to improve performance via the delivery of proactive customer care service. To realize this, the DPR‟s CCC started the “Customer at our Heart” program in 2009. Currently the program meets expectations and the feeling within the DPR‟s CCC prevails that the performance of the CCC of DPR is good and is improved through the “Customer at our Heart” program. However, there is no hard evidence for this feeling. In addition, one of the goals of the “Customer at our Heart” program is to make the DPR‟s CCC‟s performance visible and based on this visibility ensure that the CCC of DPR is acknowledged for her performance by other DPR departments. In order to make her performance visible, the DPR‟s CCC is interested in adopting a suitable performance measurement system for measuring performance at departmental- and individual levels. First priority in this is the measurement of the overall, departmental performance. Measuring performance is relevant because measuring what you speak about, and expressing this in numbers, you know something, without measuring your knowledge is of a meagre and unsatisfactory kind (Lord Kelvin, 1824-1909 in: Neely et al., 2005). Based on this „wisdom‟, the introduction and usage of a performance measurement system can be very valuable for the CCC of DPR. Next to their interest in performance measurement, the CCC of DPR is interested in feedback concerning her strategy.

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P arag rap h : IN TRO D U C TI O N 13

within the CCC of DPR in which it is not always clear what the best way is to perform. In addition, the CCM expresses the importance of the well being of employees in relation to the performance of the DPR‟s CCC. Frontline agents play a critical role in service delivery, skills, knowledge, motivation and loyalty of employees are of large importance and need proper management (de Ruyter et al., 2001; Holdsworth and Cartwright, 2003). Aspects like satisfaction, knowledge, skills, stress, control and emotion management have significant effect on the performance of services (Schneider, 1980; Honchshild, 1983; Rust et al, 1996; Sing, 2000). In order to overcome difficulties with regard to measuring services and to pay attention to the well being of employees, the present study researches the possible contribution of soft controls in relation with performance measurement systems. Soft controls are, according to (Uiterlinden, 2009), informal, subjective and not tangible management control types. A system of soft controls is a functional coherent system of management controls that cover the inner employee and are possibly be expressed in employee behavior (Mulders, 2008). Recent literature underwrites the (increasing) importance of soft controls within management control systems in general (Anthony & Gonvinderajan, 1998; Hartman, 2007 in: Mulders, 2008). About the significance of soft controls in relation to performance measurement systems in specific, knowing is written. For the present research, it seems interesting to find out how systems of soft controls can be valuable in connection with the application of performance measurement systems within customer care services.

Objectives and Contribution

For reasons as discussed above, the objective of the present study is to select and apply an appropriate performance measurement system for the CCC of DPR, measure the performance of DPR‟s CCC, and in addition, give recommendations concerning complementary soft control (systems) and strategy. The research question is therefore stated as follows:

“What is a suitable performance measurement system for DSM Powder Coating Resins’ Customer Care Center, how can a system of soft controls possibly complement this system and what is the performance of the Customer Care Center of DSM Powder Coating Resins?”

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1. What performance measurement system is most suitable to measure for measuring the performance of the DPR‟s CCC and how can the selected performance measurement system be applied to measure the performance of the DPR‟s CCC?

2. How can a system of soft controls be valuable in comprehension with a performance measurement system for the CCC of DPR?

3. What is the performance of the DPR‟s CCC and how can this performance of the DPR‟s CCC strategically be improved?

The present research is especially relevant for the DPR‟s CCC and to comparable customer care / service centres within or outside DSM. For the CCC of DPR this research is valuable because it provides an appropriate performance measurement system, complementary soft controls, performance results and strategic recommendations. For comparable customer care/ service centres the research is relevant because it provides rich information concerning the application of a balanced scorecard within a customer care environment. Besides, the research contributes to the management control literature, through providing recommendations for soft controls in order to complement and supplement performance measurement systems in customer service environments and in addition, through providing selection criteria/ objectives that can be applied in order select appropriate soft controls. Finally, the present research adds value to the balanced scorecard literature because it provides an extended practical roadmap for developing a balanced scorecard based on a combination of existing frameworks. This practical roadmap specially pays attention to value propositions and therefore can form a sound base for value proposition analyses.

Research Classification

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cases probably process accurate theory which is interesting and testable. To avoid investigator bias, this study makes use of triangulation. Triangulation is a strategy in which different methods are used to collect the necessary data and strengthens the internal validity of the research (Gill and Johnsson, 2002). Different data gathering methods as used in the present research are: personal, prescheduled interviews, observations and documentation studies. In addition, literature research is carried out.

Demarcations of the Research

For this research the following demarcations are set. The literature focus of the thesis will be on performance measurement in general and in addition on general issues concerning balanced scorecard and related value propositions and development frameworks. The practical propose will only be focused on the application of performance measurement within the Customer Care Center of DPR. A performance measurement system is selected, a design framework is developed and a performance measurement system is developed and used for measuring. For this practical part of the thesis I did an internship at the CCC of DPR.

Research Structure

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P arag rap h : 2 . RE SE A RC H A P P RO A C H / M ET H O D 1 17

2. RESEARCH APPROACH / METHOD 1

This chapter discusses the design approach and the method for the first part of the present research, the selection of a suitable performance measurement system and accessory performance measurement development framework.

2.1 Research approach

The research approach for the first part of the present research, performance measurement system and performance measurement development framework selection, is graphically displayed in figure 1.

First a case description and problem definition will respectively be given in chapter 3. After that, literature will be searched concerning management control and performance measurement as discussed in chapter 4. Based on the company information and the literature review, a suitable performance measurement framework is selected for the CCC of DPR as discussed in chapter 5.

FIGURE 1; RESEARCH APPROACH FRAMEWORK

Phase Output

1. Case

description and problem definition

Problem; wishes, preferences

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P arag rap h : 2 . RE SE A RC H A P P RO A C H / M ET H O D 1 18

2.2 Method 1

The methodology of present research can be defined as an exploratory single case study according to the research classifications as distinguished by Cooper and Schlindler (2003). The setting can be classified as a field setting. Goal of this case study is to find attitude/ opinion information needed for selection and application of a performance measurement system for the CCC. In methodological terms this purpose can be classified as descriptive and the time dimension can be classified as cross-sectional (Cooper and Schindler, 2003). The communication approach is used for data collection. For this approach is chosen because it makes it possible to gather information in a short time period and has relatively low costs.

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P arag rap h : 3 . c ase d esc ri p ti o n 19

3. CASE DESCRIPTION

This chapter discusses the performance measurement and control case of the Customer Care Center of DPR. First, paragraph 3.1 discusses the organizational structure concerning the CCC of DPR. After that, paragraph 3.2 discusses the work processes. Paragraph 3.3 elaborates on the strategy and goals of the DPR‟s CCC. Paragraph 3.4 discusses the „Customer at our Heart‟ project. Finally, the current performance measurement and control at the CCC of DPR is discussed.

3.1 Customer Care Centre (CCC) of DSM Powder Coating Resins (DPR)

Zwolle site – organizational structure

The Customer Care Centre belongs to DSM Powder Coating Resins. DSM Powder Coating Resins is part of the business group Resins of DSM.

Royal DSM N.V. is a life science and material sciences company. DSM creates solutions that do nourish, protect and improve performance. End markets to which the company delivers are: human and animal nutrition and health, pharmaceuticals, automotive, coatings and paint, electrical and electronics, and life protection and housing. The annual net sales figure is E8 billion and there are 22,700 people employed at the company. The companies‟ activities can be classified into five clusters as graphically shown in figure 2: Nutrition, Pharma, Performance Materials, Polymer Intermediates, and Base Chemicals and Materials. DPR is part of the Performance Materials cluster, which is specialized in manufacturing technology sophisticated, high-quality products that are tailored to meet customer‟ performance requirements.

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P arag rap h : 3 . c ase d esc ri p ti o n 20 FIGURE 2; ORGANIZATIONAL CHART

Source: Adjusted from: www.dsm.com/organization (2010)

The DPR‟s CCC is responsible for the whole Order to Cash Process (OtC) of DPR. This concerns the whole process from order receive till invoicing. Considering the business critical processes as displayed in figure 3, can be stated that the activities that take place at the CCC of DPR, the Order to Cash process, are positioned at the end of the business critical processes.

FIGURE 3; BUSINESS CRITICAL PROCESSES – GOODS/ MONEY FLOW

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P arag rap h : 3 . c ase d esc ri p ti o n 21 Source: Adjusted from: CCC documentation (2010)

The Customer Care Center of DPR is part of an account team that works together on different customer accounts. Other members of the account team are: account managers and technical application managers. Account managers have the end responsibility for the accounts, are responsible for sales and the financial performance on the accounts. Technical application managers provide customers with technical support. The position of the DPR‟s CCC and the relationship of the DPR‟s CCC with different stakeholders are graphically given in figure 4. As can be seen out of this figure, the main stakeholders of the CCC are the customers, the technical application managers and the account managers.

At the Centre work 8 Customer Care Officers (CCO) and a Customer Care Manager (CCM). Each CCO has his own customer account.

FIGURE 4; STAKEHOLDERS, POSITIONS AND RELATIONS (DPR’s CCC presentation, 2009)

Note; CSA: Customer Care Center; TAM: Technical Application Management; AM: Account Manager; OWC: Operating Working Capital; SFSC: Shared Financial Service Center

Source: Adjusted from: DPR’s CCC presentation (2009)

3.2 DPR’s Customer Care Centre – Work processes

The Order to Cash process (OtC) as takes place at the CCC of DPR concerns the whole process from order receive till invoicing. After orders are received, they are entered in SAP. When the orders are confirmed, transport is planned. With the transport documents are sent, which also belong to the responsibility of the Customer Care Officers. After delivery, invoice takes place.

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The Customer Care Manager also owns a customer package. Next to this, she has the team lead and is responsible for performance management, regulation and HRM practices.

3.3 Strategy and goals of DPR’s CCC

The vision of DSM in 2010 is “DSM in motion: driving focused growth”. The strategy of DSM is oriented to realize the shift from intensive portfolio management towards a strategy aimed at maximizing sustainable and profitable growth of the „new‟ DSM. A graphical overview of the strategy of DSM is given in figure 5

The main focus of DPR‟s strategy is market driven innovation that enhances growth

of the powder coating application in general.

The three main pillars that support DSM Powder Coating Resins' strategy and growth of our business are: growth in present market segments, replace solvent-based coatings on metal, and expansion towards new substrates. The following key success factors of DPR can be distinguished: global market leadership and presence, brand value (differentiation, reliability), ability to commercialize market driven innovation, leading technology platforms geared towards markets.

FIGURE 5; DSM IN MOTION: DRIVING FOCUSED GROWTH

Source: Adjusted from: www.dsm.com/strategy (2010)

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As key success factors of DPR‟s CCC are defined: customer satisfaction, profit, customer service quality, proactive customer service performance, customer relationship maintenance, sound order process management, pay load optimization, process improvements, cost reduction, sales orientation and pricing. Thereby, the CCM mentioned that she finds it important that the CCO‟s are satisfied, internally motivated and happy with their jobs. Therefore, as additional key success factors can be mentioned: employee satisfaction and employee motivation.

3.4 Performance improvement project “Customer at our Heart” at the

CCC of DPR

The “Customer at our Heart” program is a continuous process in which the CCC of DPR team strives to deliver excellent, proactive customer service and thereby maximize account profit. Thereby, the wishes of internal stakeholders have to be taken into account. The customer is the central point of attention in the program. In the first place, the improvements are made continuously as a cause of small changes in the processes, or through the addition of new customers. It is an ongoing process.

Thereby, a couple of projects are started that try to attain process improvements that are mainly focused at increasing the customer satisfaction. Examples of these projects are:

1. Identification Customer needs

2. Improving Complaint handling – finished

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Behavior that is expected from the CCC of DPR is also defined. Expected behavior is defined as: eagerness, ownership, responsibility, pro-active, challenge. Regular team meetings are discussed as a tool to come to this behavior.

The changes the DPR‟s CCC wants to make are also given through in the overview you find in figure 6.

FIGURE 6; DESIRED CHANGES DPR’s CCC presentation (2009)

Source: Adjusted from: DPR’s CCC presentation ( 2009)

TABLE 1; PRIORITIES WITHIN THE “CUSTOMER AT OUR HEART” PROGRAM

Source: Adjusted from: DPR’s CCC presentation (2009)

3.5 Performance measurement and management control at the CCC of

DPR

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DPR are discussed in paragraph 3.4. The CCC as a department of DPR focus their operations, as far as possible within this department, towards these key performance drivers.

Concerning control within the CCC of DPR, the following controls can be distinguished within the order management process: work descriptions, functional restrictions, and behavioural restrictions. Work descriptions are work packages that provide guidance to CCO‟s. Functional restrictions concerns work packages and responsibilities. For activities outside the order management process, relationship maintenance activities, there is no sufficient control system. Reviewing performances is done through conversations with employees (3 times a year; 1 official review moment), supplier ratings and through performance information. With regard to performance management, there are no specific performance measures, targets and performance evaluation systems present to measure the performance of the DPR‟s CCC. When talking about performance, performance of the CCC of DPR is discussed in relationship to sales and supply chain management. KPI‟s related tot this performance are for example: sales profit margin, delivery capability, delivery reliability, supplies chain costs and complaints information. Concerning this KPI‟s, it is not known to which extent these are influenced by the performance of the CCC. Thereby, these KPI‟s do not capture all activities and performance goals the CCC of DPR obtains.

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P arag rap h : 4 . L IT ERA TU RE R EVI EW I – P ERFO RM A N C E M EA SU RE M EN T A N D C O N TRO L IN SE RVI C E IN D U ST RI ES 26

4. LITERATURE REVIEW I – PERFORMANCE MEASUREMENT AND

CONTROL IN SERVICE INDUSTRIES

This chapter gives an overview of literature concerning management control and performance measurement systems as being part of management control. First, paragraph 4.1 places performance measurement in a bigger picture. Second, paragraph 4.2, discusses management control. Finally, paragraph 4.3, elaborates on performance measurement.

4.1 Performance measurement in a bigger picture

From reasoning by Seal et al. (2009) can be stated that performance measurement is part of control. Seal et al. (2009) define control as: “the process of instituting procedures and then obtaining feedback to ensure that all parts of the organization are functioning effectively and moving towards overall company goals”. Controlling is by Seal et al. (2009) defined as: “Ensuring that the plan is actually carried out and is appropriately modified as circumstances change” Feedback about organizational performance is, according to Seal et al. (2006), an important element of controlling and can be provided by reporting. A graphical overview of planning and control cycle as discussed here is given in figure 7.

Given the position of performance measurement within control it is valuable for the research to gain deeper insight in controlling before going into performance measurement systems. The reminder of paragraph 4 will therefore, first elaborate on control systems. After that, performance measurement systems will be discussed.

4.2 Control systems

This paragraph discusses control systems. First, in paragraph 4.1.1, a distinction is made between management and strategic control systems. After that, paragraph 4.1.2, discuses different types of management controls. Finally, paragraph 4.1.3 and 4.1.4 respectively elaborate on soft controls and the application of these soft controls.

4.2.1 Management control versus strategic control

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P arag rap h : 4 . L IT ERA TU RE RE VI EW I – P ERFO RM A N C E M EA SU RE M EN T A N D C O N TRO L IN SE RVI C E IN D U ST RI ES 27

control systems. Strategic control involves the validation of strategy. It concerns checking if strategy is still valid under changing circumstances and when possible, adapting this strategy (Merchant and van der Stede, 2007). Hereby, Merchant and van der Stede (2007) discuss that the focus is on the external organization, it examines the industry and the place of the organization in this industry. Management control is about influencing the behavior of employees in desired ways and has primarily an internal focus (Merchant and van der Stede, 2007). In this research, the focus will mainly be on management control. The remainder of this paragraph solely goes into management control.

FIGURE 7 ; PLANNING AND CONTROL CYCLE

Source: Adjusted from: Seal et al. (2006)

Management control can, according to Merchant and van der Stede (2007), be used in cases when the following control problems exist: lack of direction, motivational problems, and personal limitations. When management is able to control unpleasant surprises due to different control problems, can be stated that control is good (Merchant and van der Stede, 2007). Good control can sometimes also be achieved to avoidance of control problems instead of managing them. Merchant and van der Stede (2007) discuss three possible avoidance strategies: activity elimination, automation and centralization. Activity elimination concerns moving risks and related profits to a third party. Automation refers to the usage of automatic systems to

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prevent against control problems. Finally, centralization is about decision making at the top to avoid control problems (Merchant and van der Stede, 2007)

4.1.3 Different types of management controls

Merchant and van der Stede (2007) distinguish three types of controls: results controls, action controls, and personal / cultural controls. Results controls concentrate on results and are preventive type of controls and can be used for every category of control problems. Elements of results controls are: defining performance dimensions, measuring performance, setting performance targets, and providing rewards (Merchant and van der Stede, 2007). Action controls focus on the actions of employees to make sure that employees act in the best interest of the organization.

The basic forms of action controls are: behavioral constraints , pre-action reviews, action accountability and redundancy. Behavioral constrains

restrict people in their activities and are therefore negative action controls. Different types of behavioral constraints are: physical constraints and administrative constraints (Merchant and van der Stede, 2007). Personal controls try to influence employee behavior through using employee motivation and employee tendency to control. The goals of personal controls are: clarify expectations, ensure employees are capable, and increase self-monitoring ability of employees (Merchant and van der Stede, 2007). Different types of personal controls are: selection and placement, training, and job design and provision of necessary resources (Merchant and van der Stede, 2007).Finally, cultural controls encourage mutual monitoring. These type of controls make use of culture in a way that culture encourage employees to confirm to cultural / group norms and values. Codes of conduct, group-based rewards, intra organizational transfer‟s physical arrangements and tone at the top are all forms of cultural controls (Merchant and van der Stede, 2007).

Ouchi (1979) made another classification of control types. Ouchi (1979) distinguishes output control, behavioral control and clan control. Output controls concentrates on the output of processes. Behavioral controls try to direct behavior of employees in desired ways. Clan control uses culture to let employees behave concerning desired norms, values (Ouchi, 1979)

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systems as defined by Simons (1995) make it able for managers to ensure that goals are effectively and efficiently being achieved. “Belief systems empower individuals and encourage them to search for new opportunities” (Simons, 1995). This is done by using organizational values and goals to inspire and commit employees. The third category „boundary systems‟ establish rules and identify undesired actions and pitfalls. Finally, interactive control systems make is possible to focus managerial effort towards strategic uncertainties, learning about threats and opportunities in a changing competitive environment and proactive response (Simons, 1995).

4.1.4 Soft management controls

Recently the term „soft controls‟ appears in the management control literature. This term is not yet mentioned in the control types defined by different authors as discussed above. Soft controls are, according to (Uiterlinden, 2009), informal, subjective and not tangible. Examples of soft controls are openness, shared values, motivation, commitment till craftsmanship, honesty, expectancy management and communication. They are related to people to people who do their work to realize the goals of the organization (Uiterlinden, 2009). Hard controls on the other hand are according to Uiterlinden (2009) formal, objective, and measurable and form a framework. Examples of hard controls are activities, reviews, inspections, policies, numerical connections, structure, restrictions of powers, usernames and passwords and stock recordings. Hard controls are related to the processes and activities that run (Uiterlinden, 2009).

With regard to the discussed control systems above, Mulders (2008) and Hartog and Korte (2003) state that the personal and cultural controls of Merchant and van de Stede can be classified as „soft controls‟. In addition, Mulders (2008) states that the beliefs systems and interactive control systems of Ouchi (1995) can be categorized as soft controls.

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concerning social organizational aspects which can be defined as soft controls and in addition, Mulders (2008) has rewritten these elements to a list of theoretical controls as shown in table 2.

TABLE 2; SOFT CONTROL ELEMENTS/ GOALS AND THEORETICAL SOFT CONTROLS Elements / goals of soft

controls

Theoretical list of element/ goals of soft controls Employees should:

1. Communication - Be aware of the organizational goals and underwrite these goals - Kept informed about important developments in the organization 2. Dedication - Know the meaning of concrete organization goals concerning tasks

to carry out

- Dedicate tasks to carry out tasks as good as possible

3. Innovation - Motivated to bring up ideas that contribute to attaining company goals

4. Group based rewards - Experience group based rewards as a joint responsibility 5. Integrity - Handle integer and in line with core values or the organization 6. Management vision

and style

- See that management proclaims organizational core values within and outside the organization

- Acknowledge the vision of their superiors and experience their management styles as constructive

- Feel confident with the organizational culture

- See that management has a well considered risk policy

7. Internal guidelines - Be aware of the behavioral code and execute this code in the best possible manner

- Be aware of the internal (employee) guidelines and execute these in the best possible manner

8. Teamwork - Work together in a constructive manner - Accept each other as equals

9. Responsibility - Know their responsibility and be settled on this

10. Involvement - Be involved at important developments in the organization 11. Flexibility - Get stimulated to flow horizontally or vertically through the

organization 12. Personal

development

- Get the room to follow education that support their further development

- Get the room to develop on a personal level within or outside the organization

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satisfaction - Be acknowledged through their supervisors for their performance - Be intrinsically motivated to put effort into the organization - Have the freedom to carry out tasks independently, according to their own plans and insights

- Receive feedback with regard to the efficiency of their delivered effort

14. Goal congruence - Have goals that correspond to the goals of the organization 15. Skills - Carry out tasks that correspond to their skills

16. Task identification - Carry out tasks that stand alone, from start to end are carried out to the same person and lead to a visible result

- Carry out tasks that have influence on others within or outside the organization

Source: Adjusted from: Mulders (2008)

In the remainder of the present study, elements/ goals of soft controls as listed above will be used when discussing soft controls. For the application of this list is chosen because this list of soft controls is extensive and includes all the elements of soft controls as discussed within this paragraph.

4.1.5 When to use different types of soft controls

Concerning the usage of different „traditional‟ management control types different authors have made classifications. For instance, Merchant and van der Stede (2007) use control problem types as a classification base for usage of different management control types. Ouchi (1979) bases the usage of different types on the control situation factors like for instance, uncertainty.

With regard to the usage of soft controls, the classifications for usage as discussed above do not cover the usage for every soft control type as discussed within the present research. Mulders (2008) based the usage of a system of soft controls on case specific selection criteria and objectives. Based on these criteria and objectives Mulders (2008) investigated for each element of soft controls to which extent the soft control type is suitable for the specific case situation. Based on this investigation he selected five elements of soft controls and related theoretical soft controls that are most suitable. The complete list of selected soft controls is defined by Mulders (2008) as the system of soft controls.

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derived from parts and or objectives within the performance measurement system which are hard to measure and or can be supported in a good manner through the usage of soft controls.

4. 2 Performance measurement

This part elaborates on the aspect of management control that concerns performance measurement. First, paragraph 4.2.1 discusses the specific roles of PMS within management control. Second, different aspects of performance measurement systems are discussed in paragraph 4.2.2. After that, paragraph 4.2.3 an 4.2.4 respectively elaborated on the current business performance environment and performance measurement challenges in services. Finally, in paragraph 4.2.5 an overview of different performance measurement systems is given.

4.2.1 Roles of PMS within management control

Within management control performance measurement systems have different functions / roles. Santos et al. (2007) distinguish five different categories of business performance measurement system roles: measure performance, strategy management, communication, influence behavior, learning and improvement. Toni Toni and Tonchia (2001) distinguish the following categories of performance measurement roles within management control: planning, control and coordination of the activities; control, evaluation and involvement of the human resources; and benchmarking.

4.2.2 Performance measurement systems

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performance management systems, within the remainder of the present research the focus will be on dimensions and standards. Rewards are outside the reach of this study.

Dimensions of performance measurement systems as distinguished by Fitzgerald and Moon (1996) are aspects like profit, competitiveness and quality and every dimension has specific measures (Fitgerald and Moon, 1996). Toni and Tonchia (2001) divide performance dimensions and related measures into two categories: cost performances, including the production cost and the productivity, non-cost performances, regarding the time, flexibility and quality. Cost performances can be defined as: “the cost performances are distinguished for having a direct link, explicable by mathematical formulae with the final results of the firm, that is net income and profitability” (Toni and Tonchia, 2001). Non-cost performances is measured by non-monetary measures and the relationship with possible influence on cost performances can not mathematically be calculated (Toni and Tonchia, 2001). With regard to the cost performance dimension, Toni and Tonchia (2001) discusses related measures like: production costs, productivity, and financial ratios as can be seen in figure 8. Merchant and van der Stede (2007) also discuss measures concerning cost performances and label it as “financial performance”. Hereby, they (Merchant and van der Stede, 2007), however make a distinction between market measures and accounting-based measures. Market measures concern measures that reflect changes in shareholder performance and accounting measures with concern residual terms or ratio‟s (Merchant and van der Stede, 2007). Concerning the non-cost performance dimension, Toni and Tonchia (2001) mention the following possible measures: time, flexibility and quality as illustrated in figure 8.

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P arag rap h : 4 . L IT ERA TU RE RE VI EW I – P ERFO RM A N C E M EA SU RE M EN T A N D C O N TRO L IN SE RVI C E IN D U ST RI ES 34 FIGURE 8: PERFORMANCE MEASURES

Source: Adjusted from: Toni and Tonchia (2001)

The present research, will apply the theory concerning performance dimensions and targets for applying a suitable performance measurement framework to the CCC. With regard to performance dimensions the focus will mainly be on non-cost performance.

4.2.3 Current business performance environment

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As can be derived from Tyagi and Gupta (2008) the current business environment can be classified as knowledge oriented. This knowledge oriented business environment places the following requirements for performance measurement. The objective of performance measurement should be sustained profitable growth driven by customer value. Measurement type should be supply chain. Purpose of measurement should be % profitable growth (value per unit). Desired outcome is the achievement of business growth through innovation. The challenge for measuring in the knowledge age is performance achievement. Beneficiaries are stakeholders (ibid). In addition Tyagi and Gupta (2008) mention business scorecards as performance measurement systems that they think suits the knowledge age.

TABLE 3: EVOLUTION OF PERFORMANCE MEASUREMENTS

Aspects Industrial Age Quality Age Information Age Knowledge Age

Objective/Scope Increase productivity

Improve quality Improve bottom line

Sustained profitable growth Driver Basic needs Expectation Shareholders

driven

Customer value driven

Methodology Metrics KPI‟s Balanced Scorecard

Business Scorecard Type Output In-process Organization wide Supply Chain Purpose of

Establishing Measurements

Quantity – units (Cost per unit)

Yield % Good (Defects per unit)

% Profit (Profit per unit)

% Profitable growth ( Value per unit)

Outcome Fulfill customer needs Get customer business through quality Increase market value through profit Achieve business growth through innovation

Challenge Orders shipped Quality received Financials achieved

Performance achieved Beneficiaries Producer Consumer Shareholder Stakeholders

Source: Adjusted from: Tyagi and Gupta (2008)

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P arag rap h : 4 . L IT ERA TU RE RE VI EW I – P ERFO RM A N C E M EA SU RE M EN T A N D C O N TRO L IN SE RVI C E IN D U ST RI ES 36 4.2.4 Performance measurement challenges in services

Services cause challenges for performance measurement based on its characteristics. Fitzgerald and Moon (1996), distinguish three service categories: professional services, service shops and mass services as can be seen in figure 9. The dimensions they (Fitzgerald and Moon, 1996) use for classification are as follows: people/ equipment focus, front/back office focus, product/ process focus, level of customization of the service to any one customer, discretion available to front office staff, contact time available with front-office staff.

FIGURE 9; SERVICE CLASSIFICATION SCHEME

Source: Adjusted from: Fitzgerald and Moon (1996)

Characteristics of services that distinguish services from production are: simultaneous production, perish ability, outputs are heterogeneous and also intangible (ibid).

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employee engagement does not get enough attention (Tyagi and Gupta, 2008). At this point most frameworks could even be improved. Thereby, Tyagi and Gupta (2008) state that it is challenging to include the service innovation dimension in performance measurement. In contrary to manufacturing companies, service companies innovation has next to product and process innovation, organizational change as a third dimension. In addition innovation often takes place in an incremental way (ibid). Performance measurement systems for services have to take into account these differences (ibid). Fourth, the maintenance of a partnership focus forms a challenge. Partners play part in the performance measurement of services and this partnership element should therefore be included in measurement systems. Finally, the necessary solution view for services forms a challenge for performance measurement. This solution view is on the four perspectives of services as distinguished by Tyagi and Gupta (2008): product centric, service centric, experience, and solution centric. An overview of these perspectives is given in figure 10 They (Tyagi and Gupta, 2008) state that services in this „ knowledge age‟ have a solution centric view. Within this view, customer needs are the central point, products and services are integrated to come to solutions, service is customized and there exists co-production (Tyagi and Gupta, 2008). Suitable performance measurement systems should include measures like customer experience, satisfaction, loyalty, value created to measure the performance of the solution centric view.

The present study will take the requirements places by service characteristics into consideration when selecting a suitable performance measurement system for DPR‟s CCC.

FIGURE 10; SERVICE PERSPECTIVES

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P arag rap h : 4 . L IT ERA TU RE RE VI EW I – P ERFO RM A N C E M EA SU RE M EN T A N D C O N TRO L IN SE RVI C E IN D U ST RI ES 38 4.2.5 Performance measurement frameworks

In the performance measurement literature different frameworks for measuring performance can be found. Here the balance scorecard (Kaplan and Norton, 1996), the EFQM excellence model (Sandbrook, 2001) and the feed forward/ feed backward control model (Fizgerald et al., 1991) and the service scorecard (Tyagi and Gupta, 2008) are respectively discussed. Out of this selection of models the most suitable system for the CCC will be chosen. This selection is discussed in chapter 5.

Balanced Scorecard – Kaplan and Norton (1996)

The balanced scorecard is introduced by Kaplan and Norton (1996) for motivating and measuring business performance. The scorecard consists of four perspectives: financial, customer, internal business processes and learning and growth. This scorecard provides a balanced picture of current performance on operations and of the drivers of future performance (1996). The scorecard overcomes limitations of purely financial measurement systems because it explicitly shows value-creating processes and critical roles for intangible assets (Kaplan and Norton, 2001). A graphical overview of the scorecard is given in figure 11.

The financial perspective consists of the following elements: revenue growth and mix, cost reduction/ productivity improvement, and asset utilization / investment strategy (Kaplan and Norton, 1996). The customer perspective of Kaplan and Norton (1996) contents: market and account share, customer retention, customer acquisition, customer satisfaction and customer profitability. Internal business processes enable the business unit to deliver on the value propositions of customers in targeted market segments (Kaplan and Norton, 1996). Thereby, these processes satisfy shareholder expectations of excellent financial returns. The last perspective as distinguished by Kaplan and Norton (1996), the learning and growth perspective, discusses: people, systems and organizational procedures.

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P arag rap h : 4 . L IT ERA TU RE RE VI EW I – P ERFO RM A N C E M EA SU RE M EN T A N D C O N TRO L IN SE RVI C E IN D U ST RI ES 39 FIGURE 11; TRANSLATING VISION AND STRATEGY

Source: Adjusted from: Kaplan and Norton (1996) FIGURE 12; STRATEGIC MANAGEMENT SYSTEM

Source: Adjusted from:Kaplan and Norton (2001)

The management system as given in figure 12 will make management teams able to: monitor performance against the strategy, work as teams to interpret the data, develop new strategic insights, formulate new strategic directions, update the measures on scorecards and change budgets (Kaplan and Norton, 2001).

Brown’s performance framework – Brown (1996 in: Neely et al., 2000)

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information within the organization, business processes (Neely et al., 2000).

FIGURE 13; BROWN’S PERFORMANCE FRAMEWORK

Source: Adjusted from :Brown (1996 in: Neely et al., 2000)

EFQM Excellence Model – Sandbrook (2001)

The EFQM Excellence Model is a framework aimed to manage the continuous improvement of organization. The framework consists of enablers and results as graphically shown in figure 14. Results aspects form the input for organization purpose and enabling aspects on the other hand make it possible to achieve the desired results (Sandbrook, 2001). According to Sandbrook (2001) the advantage of the model is the provision of hard as well as soft key measures that can be use to access improvement.

Feed forward / Feed backward Control Model – Fitzgerald et al. (1991)

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P arag rap h : 4 . L IT ERA TU RE RE VI EW I – P ERFO RM A N C E M EA SU RE M EN T A N D C O N TRO L IN SE RVI C E IN D U ST RI ES 41 FIGURE 14; EFQM EXCELLENCE MODEL

Source: Adjusted from:Sandbrook (2001)

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P arag rap h : 4 . L IT ERA TU RE RE VI EW I – P ERFO RM A N C E M EA SU RE M EN T A N D C O N TRO L IN SE RVI C E IN D U ST RI ES 42 FIGURE 15; FEED FORWARD/ FEED BACKWARD CONTROL MODEL

Source: Adjusted from: Fitzgerald et al. (1991; in: Brignall and Ballantine, 1996)

Service Scorecard – Tyagi and Gupta (2008)

The service scorecard as given in figure 16 is developed by Tyagi and Gupta (2008). The service scorecard aims to balance cost and revenue, improvement and innovation, management and employees, and execution and growth.

The service scorecard of Tyagi and Gupta (2008) consists of seven elements: growth, leadership, acceleration, collaboration, innovation, execution and retention. Every element represents a business part and is related to the other parts.

The present study will select an appropriate performance measurement system for the CCC of DPR out of the different frameworks as discussed here.

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P arag rap h : 4 . L IT ERA TU RE RE VI EW I – P ERFO RM A N C E M EA SU RE M EN T A N D C O N TRO L IN SE RVI C E IN D U ST RI ES 43 FIGURE 16; SERVICE SCORECARD

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P arag rap h : 5 . P ERFO RM A N C E M EA SU RE M EN T SY ST EM SE LE C TI O N 44

5. PERFORMANCE MEASUREMENT SYSTEM SELECTION

This chapter discusses the performance measurement system selection. Paragraph 5.1 discusses the different performance measurement selection criteria. Paragraph 5.2 analyzes different performance measurement systems for the different performance measurement selection criteria.

5.1 PMS selection criteria

Four categories of performance measurement criteria are discussed in this paragraph: requirements from DPR‟s CCC, requirement from DPR, requirements formed by the current business environment, and requirements concerning the nature of services.

First of all, the requirements the DPR‟s CCC places on performance measurement (systems) have to be taken into account. These requirements are discussed in the introduction and chapter 3. Concerning the additional requirement “finding out what customers want/ desire” can be stated that fulfilling this wish is beyond the reach of performance measurement systems based on the definition of by Santos et al. (2007) and Toni and Tonchia (2001) as discussed in paragraph 4.2.1. Accordingly, this requirement will not be taken into consideration within the present research. Second, the wider organization, DSM Powder Coating Resins places requirements on a performance measurement system for her CCC. These requirements are discussed in the introduction chapter and chapter 3.

Third, the current business environment defined by Tyagi and Gupta (2008) as the “knowledge age”, sets different requirements for performance measurement systems. See here for, paragraph 4.2.3.

Finally, the service nature of the DPR‟s CCC business, sets some requirements for performance measurement systems as discussed by Tyagi and Gupta (2008) in paragraph 4.2.4

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P arag rap h : 5 . P ERFO RM A N C E M EA SU RE M EN T SY ST EM SE LE C TI O N 45 TABLE 3; FRAMEWORK FOR PERFORMANCE MEASUREMENT SYSTEM SELECTION

Criteria Specifications

Meet requirements of the CCC

1. Measure overall performance of the CCC Additional

2. Provide feedback concerning policy, strategy Fit within the

organization (DPR)

1. In line with organizational management control and performance measurement practices and way of thinking of DPR

Meet requirements of the current business

environment

1. Objective: sustained profitable growth 2. Driver: customer value driven

3. Type: Supply chain

4. Purpose measurements: % profitable growth

5. Outcome: achieve business growth through innovation 6. Challenge: performance achieved

7. Beneficiaries: stakeholders Meet requirements

of performance measurement in services

1. Capture customer variability 2. Capture engagement of employees 3. Capture service innovation dimension 4. Capture a partnership focus

5. Capture a solution-dominant view

5.2 PMS selection based on selection criteria

The following performance measurement systems, as discussed in paragraph 4.2.5, are respectively analyzed based on the selection criteria as discussed in paragraph 5.1: balanced scorecard, Brown‟s performance framework, EFQM Excellence model, feed forward/ feed backward control model, and the service scorecard.

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does therefore not completely fit the business environment of the current knowledge age (Tyagi and Gupta, 2008). Tyagi and Gupta (2008) discussed the balanced scorecard based on their own classification and state that the balanced scorecard is more suitable for the information environment than for the knowledge age. Concerning the requirements for performance measurement in services, the balanced scorecard can possibly meet all these requirements because it enables organizations to set objectives concerning specific requirements within different perspectives.

Browns performance framework (Brown, 1996 in: Neely et al, 2000) meets the requirements put by the CCC of DPR. However, since strategy is not explicitly mentioned and discussed, the framework possibly does not form a very sound base for strategic analysis. With regard to the requirements of the current business environment as discussed by Tyagi and Gupta (2008), can be stated that Browns performance framework is mainly oriented towards customers with delight customers as outcome in which the challenge is to repeat business. Based on the suitable aspects of the knowledge age as defined by Tyagi and Gupta (2008) the performance framework of Brown therefore does not perfectly fit the requirements of the current business environment. With regard to the requirements for performance measurement in services, Brown‟s performance measurement framework can possibly meet most or all these requirements. This is mainly because it orientation towards customers including their possibly variance in requirements throughout the process. In addition, the engagement of employees is captured.

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however less visible in the model.

The feed forward / feed backward control model of Fitzgerald et al. (1991) meets the requirements put by the CCC of DPR. It also includes the process of strategy formulation which makes it possible to use the model as a base for feedback concerning policy and strategy. With regard to the requirements of the current business environment as discussed by Tyagi and Gupta (2008), can be stated that the feed forward / feed backward control model is aimed to achieve financial as well as non-financial goals. About the other aspects is hard to state anything. With regard to the suitable aspects of the knowledge age as defined by Tyagi and Gupta (2008) it is difficult to analyze the feed forward / feed backward control model. This however, possibly says something about the model probably does not perfectly fit the requirements of the current business environment. Concerning the requirements for performance measurement in services, the model does not explicitly mention service requirement s as discussed by Tyagi and Gupta (2008). However, these aspects can certainly be discussed in the different parts of the framework which enable a rather free content. Thereby, concerning that the framework is developed for service environments it will fit meet related performance requirements.

The service scorecard of Tyagi and Gupta (2008) does meet the requirements put by the CCC of DPR. Although strategy is not explicitly mentioned, different strategic aspects can be differentiated in the scorecard and therefore, the model could form a suitable base for strategy feedback. Knowing that Tyagi and Gupta (2008) developed the scorecard explicitly for the current service business environment, the scorecard will probably suits this environment extremely well. At least when considering the aspects as taken in mind by Tyagi and Gupta (2008) and used here for analyses.